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US banking profits plunged 45% in final months of 2023

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Profits in the US banking sector tumbled almost 45 per cent year on year in the final quarter of 2023, even as the squeeze on consumers eased and confidence grew that the US economy would avoid a near-term recession.

The fall, to $38bn, was the biggest year-on-year drop in quarterly profits since the second quarter of 2020, according to BankRegData, a data provider that collates quarterly reports made by lenders to the Federal Deposit Insurance Corporation. The data is not comprehensive, but covers profits from subsidiaries with FDIC-insured deposits.

Profits were dragged down by one-off charges linked to last year’s regional banking crisis. The country’s largest banks expensed $16bn to cover the government-imposed “special assessment”, which replenished a deposit insurance fund that was heavily depleted by the failures of Silicon Valley Bank, Signature and First Republic.

Quarterly earnings were also hit by a $5bn increase in provisions for bad loans, a $4bn loss on banks’ securities portfolios, and higher costs as lenders cut staff and restructured their operations, the data shows.

The number of full-time workers at US bank branches fell by more than 45,000 in 2023. Wells Fargo alone said it spent more than $1bn on unexpected job cuts in the fourth quarter.

“Their income is getting squeezed,” said Christopher Whalen, a veteran industry analyst, who is the head of Whalen Global Advisors. “Depositors are going to continue to want to get paid, but what banks can make on loans and investments is slowing down.”

The drop in profits last quarter shows how the swift rise in interest rates — which started two years ago and led to last year’s bank failures — continues to weigh on lenders, even as America’s largest bank, JPMorgan Chase, reported record annual profits last year.

Truist, the country’s seventh-largest lender, fell more sharply than any other US bank. Formed in 2019 by a tie-up between BB&T and SunTrust, Truist lost nearly $5bn in the quarter, down from a profit of $1.6bn in the same quarter the year before.

The bank realised an additional $6bn in losses tied to the merger, which has been less profitable than originally expected. The bank said that was partly because the stock market value of banks has dropped since it struck the deal.

Larger banks such as JPMorgan Chase, Bank of America and Wells Fargo also saw their profits fall in the final quarter of 2023.

They fared better than their smaller peers, however, boosted in part by their investment banking and trading businesses. In the final three months of 2023, JPMorgan earned 22 per cent of the industry’s profits, its highest share in more than a decade.

US banks collectively increased earnings by 2 per cent to $256bn in 2023, a year that was marked by both the high-profile bank failures and significant government assistance for the industry.

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